The name Piccadilly may come from a tailor named Robert Baker, in the late 16th century and early 17th century. He amassed a large fortune by making and selling piccadills – stiff collars with scalloped edges and a lace border, which were then in fashion. With his great fortune he bought a large tract of what was then open country to the west of London.

After the Restoration of the English monarchy in 1660, Piccadilly and the area to the north (Mayfair) began to be systematically developed as a fashionable residential locality. Some of the grandest mansions in London were built on the northern side of Piccadilly: Clarendon House, Berkeley House (later Devonshire House), and Sir John Denham's house (later Burlington House) were built in the 17th century. Later mansions included Melbourne House (now The Albany), Apsley House, Bath House and Cambridge House. Several members of the Rothschild family had mansions at the western end of the street, and that part was colloquially referred to as Rothschild Row.

By the 1920s most of these buildings had been demolished or were in institutional use. The enlargement of Park Lane and the formation of Hyde Park Corner as a major traffic gyratory system has cut off the western stretch of Piccadilly, with the result that Apsley House has become detached from it.

21st century Piccadilly is not one of London's principal shopping streets, despite the presence of several famous shops. The Ritz Hotel is in the street, along with some other luxury hotels. There are also some offices and some very expensive flats. Piccadilly is one of the widest and straightest streets in central London.